[GUIDE] Position Size

[Husires]

Disclaimer: The information's contained in this explanation is the result of my understanding of Position Size and may contain some errors. Search and confirm about it.

Table of contents

      1. Introduction
      2. Why is that important?
      3. What is position size?
      4. How to determine account risk?
      5. How to calculate position size?
      6. Hash function properties
      7. Hash function & Mining

Source: https://br.tradingview.com/chart/BTCUSD/wglAeClR-CRYPTO-of-the-week-BTCUSD-View-unchanged-What-position-size/

Introduction

Not knowing how to manage risk leads will leads you to lose your money, no matter your technical knowledge and the size of your portfolio, so you find, for example, that a person has about $ 1,000 in his account, got an entry confirmation and did all the technical analyzes to ensure the opportunity to make profits if he buying or selling at that point, but there is still One important thing to do. He has to calculate the size of the position he will take.

Ignoring the right risk management practice will result in a huge loss in a short time. You will lose all years of hard work.




Why is that important?

Making emotional decisions is a disaster when you want to trade, when it comes to risks, you must avoid emotions.
A lot of people understand "risk management" as trying to fit stop loss orders so that they are too narrow to be too risky. This is a totally wrong strategy.

You will need to think about things like: How much capital can you take? The goal of the investment? Return on investment that achieves zero loss? But we will talk about a basic measure that many neglect, which is the size of your positions for individual deals.

Source: https://www.dailyfx.com/forex/education/trading_tips/chart_of_the_day/2014/04/09/How-to-Determine-Your-Position-Size.html

What is position size?

position size allows traders to have a fixed amount of risk per deal regardless of the size or the smallness of the market movement

position size:                     Risk Amount / Distance to stop loss.
Risk amount:                         Amount (normally USD) that you going to risk (1% rule.)
Stop loss:                              price level that you think your trade is invalidated in which you exit to prevent losses.
Distance to Stop loss:             (Entry price - Stop loss price) / Entry price

Source: https://www.tradingview.com/chart/BTCUSD/BB3JTyox-How-to-calculate-position-size/





How to determine account risk?


it is determination of the percentage of capital that can be risked in one transaction involves.
It is better to give the same risks in all deals and give them all equal opportunities but if you are very confident in the analysis, increase the risks provided that it does not exceed 10% and that you do not use emotions.


The 2% rule:

It is an appropriate strategy for highly volatile markets that need to define long-term positions.
If you are active, you may use The 1% rule.

There is no one-size-fits-all approach to determining your stop loss. Therefore, you will have to start with fixed rates and then decide for yourself the strategy that best suits your style.




How to calculate position size?

Let's say we have an account with $ 10,000. We have demonstrated that we do not risk more than 1% in one trade and after analyzing the market we decided that our business idea was nullified by 5%:


Account size : $ 10,000
Account risk : 1%
Invalidation point : 5%

position size = account size x account risk / invalidation point = $10,000 x 0.01 / 0.05 = $2000

Thus we can mitigate the impact of a price collapse.

It is not related to strategy but to determining the levels of risk you want to face.

No we want to buy BTC at $8,000 and our SopLimit below key support level at $7,000 .
the Distance to SL would be ($8,000 - $7,000) / $8,000 = 0.125.
Now lets say our risk amount to be $100 per trade, the Position size in this example is thus equal to $100 / 0.125 = $800

Sources

Code:

https://www.youtube.com/watch?v=RE9tk78ALd0
https://tradingcryptocourse.com/course/position-size-calculator/
https://medium.com/@cryptoaims/how-to-calculate-position-size-for-your-trade-free-bitmex-calculator-b3dc0522d14
https://www.tradingview.com/chart/BTCUSD/BB3JTyox-How-to-calculate-position-size/
https://academy.binance.com/economics/how-to-calculate-position-size-in-trading

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[sheenshane]

It's well said, ain't good in actual trading but I understand how to make theories like this, to be honest, it's easy to say but it's hard to apply those strategies we had.

In 1% risk is enough for experts and even new in the trading field, this is how accurately measure your trading risk management if that will exceed 1%, it could be wiped out your entire capital and possibly it's hard to recover your loss when you encounter a long streak of loss.

Therefore, IMO, risk management, and stop-loss are very important in trading, it seems you're playing safe but it has a great potential of making money even though it's a small profit return.

[layoutph]

Nice guide but I decided to stay in spot trading as I already lose a huge amount of money from being greedy with futures. Anyway we are in bull run, we can get a profit of 4x to 6x without using any margin.

[Karish2return]

An informative post indeed, i'm a day trader and still getting profit but one problem i had have since many time due to which i had loss many of my profits just because of my greed, whenever there is a chance of getting more money i had performed greed and had loss most of my money in this way whether in futures or in other trading, which is quite a bad habit.

[crwth]

This is very helpful for those unfamiliar with the fundamentals such as position size. It's definitely something to look forward to when understanding how to trade. Anyway, I think it's good to understand that position size is very important when it comes to margin trading or the futures market. This will be the determining part on how much percentage would it be or how far the liquidation limit is for your position.

It would vary as well on what actual strategy you are going to use on this. I just appreciate seeing stuff like this because I can utilize Gunbot.

[palle11]

An informative post indeed, i'm a day trader and still getting profit but one problem i had have since many time due to which i had loss many of my profits just because of my greed, whenever there is a chance of getting more money i had performed greed and had loss most of my money in this way whether in futures or in other trading, which is quite a bad habit.

The greatest advantage of a day trader is to identify your mistake by yourself and that will make you try to do the right thing the next time. As always greed is a very bad eater of your balance, you can profit on greed but if it turns against you, it is likely taking you far back to your beginning. Keep to the corrections you have made, your emotions have to be on check not to be tempted.

[adaseb]

This article is pretty informative to most new traders and can be a big help in the right direction.

However one area where I don't agree is the AUDNZD 30 minute chart that you posted earlier. Breakout trades are not good trades for new people to take. In your example the trade did work out, however most of the time whenever price hits a pivot high or low, it ends up fading at least once before the real break-out.

So most traders are either better off entering before the breakout or after the breakout on the pullback. Also the stop in your example is way too far off from the entry price. And if you look where price peaked, it lets you get a max 1 R:R which is very bad with a hit rate that works less than 50% of the time.

Other than that, its a great article.